What do I need to know about: Critical Chain Project Management?

Ian Heptinstall asks if Critical Chain Project Management can deliver better outcomes for construction.

A shorter version of this article appeared in CM’s February edition.

You would think that if there was a way to manage projects that almost guarantees a faster implementation, lower costs, and higher quality, the construction industry would jump at it. Developed less than 20 years ago, the planning and execution management method Critical Chain Project Management (CCPM) makes some bold claims, including: project durations reduced by 20-40%, whilst simultaneously increasing due-date reliability; reduced cost; improved quality, and delivering more projects with the same resources

It has been successfully implemented all over the world, and in most business sectors. Companies ranging from Boeing to Seagate, and Tata to NASA have used CCPM and claimed dramatic results.

But it has gained almost no traction in the construction sector.

That is not to say that is it not applicable in construction. The industry is not immune from the problems that beset projects in other fields. Despite more and more qualified project managers, researchers continue to report that most projects do not achieve their objectives. The root causes of the problems we experience in construction projects are the same as those addressed by CCPM.

Nor is it true to say that there are no successful implementations of CCPM in construction. An Indian EPC company (part of the Tata Group) reduced lead times, increased its capacity by 75%, and increased its profitability, within nine months of implementing CCPM. In the mid 1990s Harris Semiconductor built and commissioned a $250m factory in less than 30% of the industry benchmark time. 

In Japan, the government’s largest ministry has built CCPM into its way of working, and it is rapidly spreading by word of mouth into other parts of the public sector. There it is being used on tens of billions of dollars’ worth of projects each year. More recently in 2011 the Indian state of Bihar mandated the use of CCPM on its state-wide £2bn infrastructure development programme.

Closer to the UK, CCPM has been trialled successfully on several occasions, notably on a DTI-supported pilot project involving Denne Construction in the early 2000s, and a series of road projects involving Balfour Beatty in the mid-1990s. In both cases the project teams declared the method was a success. So if one of the UK’s leading companies was one of the first organisations in the world to use CCPM in construction, why did its use peter out so quickly?

I can only speculate, having spoken second hand to some of those involved. CCPM works very well in construction, but it requires a very different way of working, and challenges some ingrained practices. When the pilot projects were over, the various improvement teams dispersed, and with no strategic drive to exploit the method, its use petered out, and it was back to business as usual.

Managing project risk and uncertainty

On any project, we can be almost certain that there will be unexpected problems. The only thing we don’t know is where and when the problems will happen.

The prevailing approach to project management expects work package and task managers to plan for these eventualities, and to give firms time and cost commitments. 

CCPM takes a different approach to managing this uncertainty, which is managed at the project level, not the task level. 

This uses the well proven statistical principle of aggregation (exactly the same principle that the insurance industry is built on). If we all had to self-insure our cars, we would collectively have to put far more money aside to cover the potential costs, than if we pool our risks with millions of others, and take out insurance.

The same principle is used when building a CCPM schedule. Tasks are not expected to include “insurance” time in case something happens, including problems such as the weather, staff sickness, vandalism or theft, interference from other trades… 

The insurance time is pooled into buffers placed strategically in the project schedule, and used by those tasks that need it. Because this pooled time buffer is smaller than the sum of insurance time included in the individual tasks, the whole project is shorter. CCPM also implements other planning and execution rules that ensure that time buffers are not wasted, problems are identified and resolved when they are small, and traditional practices that cause delay and inefficiency are minimised.

This leads to a project with a shorter duration, using less resource, and with a higher degree of reliability.

If most of the project work is done by in-house resources, there is usually little problem in the idea of a shared time buffer. On 90% of CCPM implementations this is the case. However, in construction over 80% of the work is usually done by other companies, with a contract in the way. The idea of a buffer shared across all the project contractors, conflicts with how we usually contract project work – with fixed prices. 

Which is why, in my view, CCPM has not gained much traction in the industry, and why we need another change to exploit its potential.

Collaborative contracting

For decades the wise and good in the industry have encouraged more project collaboration. But few decision makers seem to have followed the advice. Many in the industry still see collaboration as a premium price option – something we do only when we can afford it. 

Using collaborative contracting to set up a Project Alliance (or Integrated Project Team) first came to prominence in the UK in the late 1980s, when the North Sea oil industry implemented the CRINE initiative [Cost Reduction Initiative for the New Era]. This resulted in significant reductions in the time and cost of new oil and gas developments. Just like with CCPM, other countries (notably Australia) embraced and further developed the idea, whereas in the UK it was quietly forgotten, though the 2011 UK Government Construction Strategy has adopted the principles.

A project alliance is not a silver-bullet, but if implemented well it does for project cost what CCPM does for time. Rather than force cost risk down the supply chain, it is managed at the project level. Once the alliance is in place, the project costs what it costs, and the alliance members are rewarded not by how much passes through their books, but by how successful the project is (as defined by the client). There is no supplier incentive to increase their individual turnover – and no penalty for reducing it.

This alignment of interests between client and suppliers can by itself deliver significant benefits. Having studied hundreds of projects, the US Construction Industry Institute reported that collaborative teams delivered cheaper, faster, safer, and better projects.

Add this to the proven benefits of CCPM, and you might have the key to deliver the same project scope on time but sooner; on budget, and for less; to higher quality, but without compromising on your scope. Is familiarity with our existing contract forms really a valid reason not to give this a go?

Ian Heptinstall is a management consultant who has held senior procurement positions in pharmaceuticals and construction. To find out more, visit www.profitableprojects.org/cm-feb15